How to invest your $640 Mega-Millions
If you win that huge prize, you might want to party like a rock star. But a financial advisor would probably tell you to invest it like Grandma. You'd still have millions to spend every year.
Chances are that few, if any, of those dreaming what they’d do with the $640 Mega Millions jackpot fantasize about what their financial adviser might say. That’s because these buzz kills with CFPs think lottery winners should be as boring as possible -- at least, that is, when it comes to their portfolios.
After taxes, the record payout is likely to be closer to $320 million as a lump sum. However, tickets purchased in states such as Delaware and California will be worth even more due to the lack of income tax on winnings, according to USAMega.com.
Regardless, the prize money should be more than enough to fund a lifetime of lavish spending. Too often, of course, lottery winners blow through the cash so quickly they end up bankrupt. That’s where the dullness comes in, advisers say. The winner might consider investing like a grandma, with a surefire and downright boring portfolio. "If they are conservative they can have an amazing life style year after year," says Andrew Feldman, a financial planner in Chicago. "If they take too much risk they may lose too much." (Post continues after video...)
The sheer size of such a portfolio, advisers say, makes it possible to earn an outsize income with ultra-conservative investments. And lottery winners wouldn’t even have to spend a dime of their actual winnings to maintain millionaire lifestyles. Taken to the utmost extreme, investors could keep the entire stash in cash as three-month Treasury bills, where the $320 million would earn 0.07%, or $224,000. But no one needs to be quite that conservative, advisers say.
Instead, one approach could be to put half the winnings in high-grade municipal bonds, where the income earned is tax exempt, says Matthew Goff, a financial adviser in Houston. That could bring in roughly $3 million a year in income, he estimates. Another 40% of the winnings could be put in high quality corporate bonds, where it could earn about $2 million a year. And for the sake of helping the jackpot keep pace with inflation, the rest of the cash could be invested in dividend paying stocks.
All told, that adds up to an annual income stream of about $7 million, that winners can live off of without having to touch the prize money, says Goff. “You could be much more conservative than say someone with a more typical portfolio,” he says. “Risk taking becomes more of a luxury than a necessity.”
Of course, the reality of winning could be much more complicated when one considers phone calls from distant relatives, student debt and life-long dreams of owning a business. Winners will probably have to dip into their principal, for instance, if they want to set up a private foundation for children with disabilities or buy their high school a new wing, says Brian Kazanchy, a wealth manager with RegentAtlantic Capital in Morristown, N.J. They might also want to buy companies rather than just invest in them. For that reason, Kazanchy recommends separating a portion of the winnings to cover large one-time expenses like charitable foundations, family trusts and a business ventures. The rest of the cash can then be invested conservatively to cover living costs, he says.
Most people buying a Mega Millions ticket today will find the odds aren’t in their favor: the chances of winning the Mega Millions jackpot on Friday are about one in 176 million, according to lottery officials. And even those who win may have to fight for their share. But that doesn’t stop people from dreaming about it. Indeed, psychologists say just the act of playing the lottery and fantasizing about what one would do with the winnings makes the jackpot feel more attainable. “The enormous amount attracts attention and people inevitably think of what it might mean to win,” says Nobel-prize winning psychologist and behavioral economist Daniel Kahneman. “That thought, in turn, makes the event more plausible.”
More at SmartMoney.com:
VIDEO ON MSN MONEY
TOTALLY CONSERVATIVE You can get Approx 10 Million a Year without touching the money If that is not eneough...or if you manage to screw that up and lose it..you are a MORON.....more than a moron....I would up my life style...even If you spent 2 million a year (40,000 a WEEK) You are still putting 6 to 8 Million AWAY Per Year on top of the Motherlode....and THAT will grow and compound...My God...that is Generational money....If I win...dont even think of coming to me for investments or anything else...I WILL be the Dispenser of Charity Personally... how I DEEM necessary ,Honest, and FIT.........on a PERSONAL basis...I would NEVER give to some crooked organization or charity for their"expenses" with me...It will be hands on after I take care of my family ...buy my toys which everyone does. make sure I am secure with passive income...and take care of my short list (which is VERY short and I know EXACTLY who is on that list) I KNOW who was there and who loves me through thick and thin.who was genuine my entire life past and present...because of ME....not what I have obtained.....Then I would spend my life doing what I want....and have an amazing time helping people I pick out PERSONALLY on a One to one basis....THAT will be an amazing FEEL good life experience..having the ability to change and/or Help lives...for what I consider to be important. Yeah.................
Money doesn't make you better...it makes you richer.....and I KNOW this....too bad most of the ones in power don't.
After the Madoff scam and other wall street rip offs why would anyone invest their money? You won half a billion dollars, do you need more?
Invest? Seriously! In the off chance you might retire with a little more! Die hard investors crack me up. "The first thing I would do is invest!" Idiots! You have 100's of millions of dollars in your account. With out it, If you invested your entire life, you may retire with a half million! I would have a ball, and so would all my friends and family. I would start my own business, set up a strong future for my children, and theirs!!!
Heck, I'd be happy with the five number winnings at this point! That would be enough to sock some away for the kids to go to college and I could still buy a new car and take a sweet vacay. Aahhh, one can only hope... :)
I don't want to begin to imagine the crazy rush next week if there are no winners tonight!
Figuring a 90 year life, very high guess..............that leaves 72 years to survive w/346 mil after taxes cash option, 4.8 after taxes....the equivilant of 6.24 mil yearly before tax lifetime income...........substantial!
1) college fund for my son and any future children
2) pay off my house !! wouldn't take much as its almost paid off now !!
3) buy a NEW car .... my husband nor myself have ever had a brand new car
4 ) extended family/charity
since my workaholic husband probably will never stop working who knows what would happen to the rest ..... invest in gold !
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the Tuesday session on a lower note after generally upbeat earnings took the back seat to geopolitical concerns. The S&P 500 (-0.5%) and Nasdaq Composite (-0.1%) ended on their lows, while the Russell 2000 (+0.3%) displayed relative strength.
Once again, market participants were focused on quarterly reports in the early going, but geopolitical worries overshadowed the impact of mostly better than expected earnings. Specifically, equities ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'